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This Month in Business History

Federal Deposit Insurance Corporation (FDIC) Established

Bain News Service, photographer. Italians around suspended bank. NYC. [between 1907 and 1914]. Library of Congress Prints and Photographs Division.

The Federal Deposit Insurance Corporation (FDIC), an independent agency of the federal government, was created by the Banking Act of 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. According to the FDIC, their mission is to "maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising commercial and savings banks, working to make large and complex financial institutions resolvable, and managing receiverships." In this way, the agency prevents “run-on-the-bank” scenarios or “bank panics,” which occur when a group of concerned customers rush to withdraw money from the bank. This type of panic resulted in the failure of many banks during the Great Depression and contributed to the loss of the Silicon Valley Bank (SVB) in March 2023.

The FDIC is funded by premiums that banks and savings associations pay for deposit insurance coverage. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category and is automatic. The insurance is backed by the full faith and insurance of the U.S. government. FDIC insured banks have the following assets covered by this insurance: checking accounts, savings accounts (both statement and passbook), Money Market Deposit Accounts (MMDAs), and Certificates of Deposit (CDs). This deposit insurance does not insure assets from institutions not insured by the FDIC as well as the following types of investments: cryptocurrency, mutual funds, stocks, bonds, annuities, and any investment that is not a deposit.

The FDIC has a supervisory program where it monitors the safety and soundness of its supervised institutions to anticipate and avoid problems. The agency employs a resolution process for failing banks, and a receivership process for failed banks. When a bank closes, the FDIC is typically appointed as the receiver and is responsible for resolving the failed institution. The FDIC played a primary role in stabilizing the banking system during various periods of turmoil in U.S. history, including during the Great Depression (1930s) when there was widespread bank failures, the Savings and Loan Crisis (1980s–early 1990s) when there was a collapse of many of these institutions due to risky lending practices and interest rate volatility, and the Financial Crisis (2007–2008) caused by a variety of factors including: subprime mortgage lending, excessive risk taking, lax regulation, a housing bubble, the collapse of major financial institutions, a credit freeze, and a severe economic recession. In response to the Financial Crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed on July 21, 2010. Despite these enhanced legislative initiatives, on March 10, 2023, SVB failed due to mismanagement, its investments losing value while its depositors began withdrawing large amounts of assets.1 After the collapse of SVB, Signature Bank failed and other institutions faltered. Regulatory agencies came under scrutiny for not anticipating issues earlier concerning the soundness of SVB.

Part of the FDIC's charter is to protect consumers rights and promote community investment initiatives. The FDIC Money Smart financial education program can help people of all ages enhance their financial skills and create positive banking relationships. In addition, the agency provides detailed economic and financial data for a variety of users.

Print Resources

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  1. David H. Carpenter and Jay B. Sykes, Silicon Valley Bank’s Failure and Potential Director/Officer Liability, April 7, 2023 (Congressional Research Service) (PDF, 1MB). Back to text